Corporate law governs the formation, governance, and operation of corporations. The field encompasses entity formation, securities compliance, mergers and acquisitions, and the fiduciary duties that define relationships among directors, officers, and shareholders. Corporate transactions create and transfer enormous value, making corporate law central to commerce.
Corporate Formation
Articles of incorporation filed with the state create the corporation. Required contents include corporate name, registered agent, authorized shares, and incorporator information.
Bylaws establish internal governance rules. Bylaws address meetings, voting, officers, committees, and other procedural matters. Shareholders or directors adopt bylaws depending on state law.
Organizational actions establish the corporation’s initial structure. First board meeting elects officers, adopts bylaws, authorizes stock issuance, and handles other startup matters.
State of incorporation choice affects applicable law. Delaware dominates for its developed corporate law, experienced courts, and flexibility. Other states may offer advantages for specific situations.
Stock issuance requires compliance with securities laws. Even initial issuances must satisfy exemptions from registration requirements.
Corporate Governance
Board of directors manages the corporation’s business and affairs. Directors are elected by shareholders and serve until successors are elected or they resign or are removed.
Officers handle day-to-day operations. The CEO, CFO, secretary, and other officers are appointed by the board and serve at the board’s pleasure.
Shareholder rights include voting for directors, approving fundamental changes, and receiving distributions. Shareholders do not manage the corporation directly.
Annual meetings are required. Shareholders elect directors and conduct other business. Special meetings can be called for specific purposes.
Quorum and voting requirements determine how decisions are made. Majority of shares present typically constitutes quorum. Plurality voting elects directors unless bylaws require majority.
Fiduciary Duties
Duty of care requires directors to act with the care an ordinarily prudent person would exercise. Informed decision-making after reasonable inquiry satisfies the duty.
Duty of loyalty prohibits self-dealing and requires directors to act in the corporation’s best interest. Conflicts of interest must be disclosed and managed.
Business judgment rule protects good-faith decisions. Courts do not second-guess business decisions made by disinterested directors on informed basis.
Entire fairness applies when conflicts exist. Self-dealing transactions must be entirely fair in process and price.
Caremark duties require oversight of legal compliance. Boards must implement monitoring systems and respond to red flags.
Shareholders’ Rights and Remedies
Inspection rights allow shareholders to examine books and records for proper purpose. Litigation to enforce inspection rights is common.
Derivative suits allow shareholders to sue on behalf of the corporation when the board fails to act. Demand on the board or demand futility is prerequisite.
Direct suits address harm to shareholders individually rather than the corporation. Violation of voting rights and breach of disclosure duties support direct claims.
Appraisal rights provide fair value for shares in certain transactions. Shareholders who dissent from mergers can seek judicial valuation.
Class actions aggregate shareholder claims. Securities fraud and breach of fiduciary duty claims commonly proceed as class actions.
Corporate Finance
Authorized shares are the maximum the corporation can issue. The articles specify authorized number and may create classes.
Issued and outstanding shares are actually in shareholders’ hands. Treasury shares are issued then reacquired.
Par value is a minimum issuance price. Modern practice uses low or no par value. Consideration received is allocated to capital accounts.
Dividends distribute profits to shareholders. Board declares dividends. Legal capital rules limit distributions.
Stock splits and dividends adjust share numbers. Splits increase shares proportionally. Stock dividends issue additional shares.
Debt financing through bonds and loans is distinct from equity. Creditors have priority over shareholders but no governance rights.
Corporate Transactions
Mergers combine entities. Shareholders of each constituent corporation vote. Surviving corporation assumes all liabilities.
Asset purchases transfer specific assets. No automatic assumption of liabilities. Due diligence is essential.
Stock purchases transfer ownership of target corporation. Liabilities remain with the corporation. Less disruption to contracts and licenses.
Tender offers are direct purchases from shareholders. Acquirer bypasses target board. Williams Act regulates tender offers.
Due diligence investigates the target. Financial, legal, operational, and environmental review precedes transaction.
For Service Members
Corporate law affects service members as business owners, executives, and shareholders.
Veteran-owned corporations can access government contracting preferences. VOSB and SDVOSB certification requires meeting specific ownership and control requirements.
Service-disabled veteran ownership requires disability connected to service. Certification involves documentation of disability and business ownership.
Board service by service members requires attention to conflicts of interest. Government employees on corporate boards face ethics restrictions.
Reserve and Guard activation can disrupt corporate operations. Succession planning and authorized signatories address absence.
Security clearance and corporate positions interact. Corporate officers of defense contractors face clearance requirements.
Corporate governance during deployment requires planning. Powers of attorney, pre-authorized resolutions, and delegated authority maintain operations.
Post-service corporate careers benefit from understanding governance. Transitioning service members entering business roles need corporate law knowledge.
A military attorney understands VOSB certification requirements, how military service affects corporate roles, and how to maintain corporate governance during deployment.
Disclaimer
This article is provided for general informational and educational purposes only. Nothing in this article constitutes legal advice, and no attorney-client relationship is formed by reading this content.
Corporate law is complex and varies by state. Delaware law dominates but other states’ laws may apply. Transactions involve securities law, tax law, and other specialized areas. The information presented here may not reflect current law or apply to any specific corporation.
Do not rely on this article to make legal decisions. Corporate governance failures create personal liability for directors and officers. Transactions require careful legal structure.
If you are forming a corporation, serving as director or officer, or engaging in corporate transactions, consult with qualified corporate counsel.
The authors, publishers, and distributors of this content expressly disclaim any liability for actions taken or not taken based on this information. Reading this article does not create an attorney-client relationship with any person or entity.
For service members in corporate roles or seeking veteran-owned business certification, military status creates both opportunities and obligations. Seek counsel familiar with both corporate law and military-specific considerations.